PETALING JAYA: The coming 15th general election, coupled with possible reducing interest rate increases in the United States, will put some stability in the FBM KLCI, with Bursa Malaysia’s benchmark index possibly touching 1,580 points by year’s end, according to Rakuten Trade.
Its head of research, Kenny Yee, expects improved trading activities in the next two quarters. The RM95 billion allocation for development expenditure in Budget 2023 should spur buying interest in the construction sector.
“We should see foreign funds providing the much required liquidity in the market, thus anticipating the FBM KLCI to possibly touch 1,580 points by year-end, premised on a very reasonable 13 times 2022 price-to-earnings (PE) ratio,” Yee told a post-Budget 2023 media briefing today.
Following consecutive declines in 2020 and last year, foreign shareholding in the local bourse touched the lowest at 11.35% at end-2021 before improving, underpinned by foreign net inflows.
Yee said the performance of the local bourse has been immensely impacted by global uncertainties, primarily developments in the US.
The heightened market volatility, which is expected to continue, has created ripples across the region including Malaysia.
“Market volatility will certainly last until the end of this year. Rate hikes in the US create uncertainty in the market. Comparatively, Asia is doing better than Europe,” he said.
The FBM KLCI is now at its steepest discount at less than 12 times PE, almost 40% less than its five-year historical average (18.4 times PE). Similarly, regional valuations are also below their respective historical average.
“Looking at the current situation, there’s a strong support at the current levels. So unless something happens, such as a crisis, I think the market has already bottomed out,” Yee said.
In line with the decreasing market traded volume, retail participation has been greatly reduced. Year to date net inflow from retail investors amounts to only RM2.2 billion, compared with RM11.8 billion last year.
As for corporate performance, Rakuten Trade said 2023 earnings growth should increase to 6.8% due to upgrades in the banking sector despite lower estimates for plantation and manufacturing.
“Banking sector growth next year would be quite nice at about 15% to 16%,” Yee said.
Rakuten Trade vice president Thong Pak Leng said recent performance of in the second quarter of this year (+8.9%) and August 2022 exports (+48% year-on-year) would support growth prospects and demand for business loans.
“While this may taper down in 2023, Rakuten anticipates a continuing OPR upcycle (two additional 25 bps hikes to 3.00% by the first quarter of 2023) to cushion banking net interest margin,” he said.
The downward earnings growth revision for 2022 from 4.3% to 1% is mainly attributed to the cuts for manufacturing and utilities sectors. Commodities were not spared either as both the crude palm oil (CPO) and crude oil underwent wild gyrations.
“The CPO went from the high of RM7,200 to now RM3,800 while the brent crude to US$98 (RM458) from around US$130,” Thong said.
On the currency, Rakuten expects the ringgit to remain at the 4.50/60 range against the US dollar until end-2022 and to strengthen in the second half of 2023 to 4.10/20.
